Is Japanese property still a good bet?

With the recent decline in Japanese consumer confidence, factory output and inflation rate, the so-called Abenomics seems losing its shine.

Goldman Sachs said in a recent report that the Japanese economy is informally in a triple-dip recession, which is a recession follows by two short-lived recoveries.

Now, what will be the impact of the shrinkage of the economy on the nation’s housing market, which has been attracting foreign buyers in recent years for high rental yields?

Ask the property developers, and you won’t sense any negativism. Although the country’s second quarter GDP contracted by 1.7 percent over the previous three months, developers remain quite optimistic about the future. Here is their argument.

Japan has won the bid for 2020 Olympics, and infrastructure and residential construction activities are all at their fastest speed in more than a decade.

To shore up the economy, Prime Minister Shinzo Abe had earlier advocated a series of economic policies based on “three arrows” of fiscal stimulus, monetary easing and structural reforms.

Among other moves, Abe is also determined to pass a law to legalize casinos in the coming months as a way to stimulate tourism.

The most likely location for a gaming center will be the Kansai area. If the policy change takes place, it will create strong need for construction and other workers and boost housing demand in neighboring cities.

Home prices in Tokyo and Osaka have risen 15 percent since this February. It is expected that the prices will continue to climb in the next three years, according to Japanese newspaper Chubun.

Tokyo is said to be the best choice for investors. The rental return of the existing homes in the city reportedly reaches as high as 10 percent.

A senior Japanese property agent pointed out to media that one can buy a unit measuring about 170 to 200 square feet for around HK$1 million, just half or even one-third of the housing price in Hong Kong.

Meanwhile, because of the unconventional monetary policies of the Bank of Japan, the yen has become 25 percent cheaper in five years. This serves as an additional catalyst for overseas buyers, especially people from mainland China, Taiwan, Singapore and Hong Kong, to load up on Japanese property.

As the BOJ has stopped expanding the monetary base following its recent meeting, the Japanese currency may have hit the bottom. That should provide another incentive for property buyers.

But, the scenario could be very different if Japan falls into another recession. Chance of wage hikes would be slim and in a worse case, layoffs would climb, eventually hitting the rental market.

The cost of buying houses in Japan could also rise if Abe decides to press ahead with a plan to further raise the sales tax by two percentage points to 10 percent.

Some government officials have already warned that another consumption tax hike might derail the already fragile economy, which is another risk for real-estate investors.

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